MPs say HMRC are 'too cosy' with the City

A scathing report from MPs questioning whether HM Revenue & Customs and
its top officials are acting legally in the way they handle tax disputes and "sweetheart"
deals with major companies started a furious row last night.

HMRC swiftly rejected the key findings about management failures and said: "The report is based on partial information, inaccurate opinion and some misunderstanding of the facts." HMRC insisted that its internal processes were "robust."Photo: PSL Images / Alamy

The report, from the Public Accounts Committee (PAC), suggests HMRC risks losing "many millions of pounds" in cases where it is chasing a total of more than £25bn in unresolved tax bills because of a "too cosy" relationship with the companies.

Margaret Hodge (Lab) chairman, said the report was a "damning indictment" of HMRC and its senior officials. She said: "We uncovered both specific and systematic failures which must be addressed."

HMRC swiftly rejected the key findings about management failures and said: "The report is based on partial information, inaccurate opinion and some misunderstanding of the facts." HMRC insisted that its internal processes were "robust."

Treasury minister David Gauke said the Government had "full confidence" in HMRC and its current leadership but the PAC has asked the National Audit Office to investigate some of the contentious tax deals. Sir Andrew Park, a senior judge, has been approached to head the inquiry.

UK Uncut Legal Action, a direct action group, plans to use the report to start proceedings against HMRC over the "sweetheart" deal with Goldman Sachs. HMRC and Dave Hartnett, Permanent Secretary in charge of tax affairs, are alleged to have cost the taxpayer around £20m because the US investment bankers escaped an interest payment.

The Goldman case is expected to be one of ten investigated by Sir Andrew if he takes the job. Another involves Vodafone which settled a dispute for £1.25bn when it was alleged the total bill should have been nearer £6bn.

Mrs Hodge said that after looking at the Goldman and Vodafone cases the committee was "concerned that many millions of pounds may be lost to the public purse." HMRC has changed the rules covering the handling of tax cases of over £100m but Mrs Hodge questions whether the Goldman case would have escaped the new set up.

The MPs were highly critical about the performance of Mr Hartnett and other officials who refused to give details of the cases on the grounds of confidentiality. "We expect far greater candour from public officials involved in administering such an important area of government, especially when there is a question about whether HMRC acted within the law and within its protocols."

Mr Hartnett, 60, has announced he will retire next year after telling MPs he had not considered resigning over the issues. The MPs said that "those at the top of the department have not taken personal responsibility for serious errors" .

Departure from "normal governance procedures" in several cases allowed the tax commissioners to sign off settlements they have negotiated themselves, the MPs said. HMRC had also left itself open to the suspicion that its relationship with large companies was too cosy.

Mr Hartnett attended a "significant number" of informal lunch and dinner meetings with companies involved in complex tax disputes. The MPs felt he risked leaving the impression "that he has acted improperly or exercised poor judgment."

The committee said it was unfair that the bigger companies were being given up to ten years to settle their liabilities while small businesses did not have the same leeway.